F.A.Q.

What is Turnkey Private Lending?

A. Being a private lender is taking on the role of a bank, lending funds on an asset secured by a mortgage—only done with private funds. This type of short term investment loan provides the opportunity to earn interest rates that are 2- 4 times as much as currently available in bank CDs or other traditional investment classes.

A. It means you don’t need to do it all yourself…nor provide all of the money for a specific loan yourself. When a qualified borrower needs cash to buy an investment property, Financial Freedom Investors evaluates the borrower and the deal…then offers qualified individuals an opportunity to participate in funding the loan on a fractionalized basis.

How is the money used?

A. Experienced real estate investors need cash to fund purchases of distressed houses and complete renovations to fix up properties… plus cover the other costs associated with buying and selling houses. Typically, they sell the property to pay off the loan.

Why seek private loans?

A. Banks and other lenders generally do not lend on properties that require substantial fix up prior to occupancy. Even if they did, the time it takes for banks approval process is often lengthy and the best deals get snatched up fast by buyers who pay cash. As well banks require complicated approvals and must follow guidelines imposed by the banking industry. There are limits to the number of loans they can make to any one company or investor.

Rehabbers can move much faster without these limitations by using private lenders. Private lenders can quickly determine if a loan is safe and meets their requirements. That allows borrowers to negotiate more profitable “cash purchase” deals that need to settle quickly. For example, virtually all foreclosed properties are sold only to cash buyers…even though it may not be the rehabber’s personal cash.

Market conditions and security of the loan.

A. Due to the sub-prime mortgage collapse of 2008 the value of housing experienced a significant decline in most markets. Recently we have observed that home values in almost all markets are increasing, however, in many markets prices are still below where they were in 2008 before the declines.

As private lenders who only do short term loans with huge “protective equity” (we always limit lending to far less than the property is worth), Financial Freedom Investors is not concerned about short term fluctuations in property values. The banks and home owners who got in deep trouble on “sub-prime” loans did so because the loan typically had a very small down payment and as property values declined the borrower ended up owing more than the home was worth. That should never happen in our loans because our spreads between what we lend and the value of the home is so large that value swings in the short term are insignificant.

Rates and Terms

A. In private lending, each deal is negotiated separately, depending on several factors like the total loan to value and amount of money the borrower is putting into the deal. In the end, it’s about finding a deal that is right for you; after all….it’s your money. However, rates will always be much higher than any CD or traditional investment assets like government treasuries. Private lending secured by real estate is an ideal way to “multiply the returns on your investment capital”.

A. Unlike traditional bank loans, most private loans are short term, ranging from 6 months to a couple of years term. Most borrowers need less than one year for their project to improve the home and get it sold. However, there are also opportunities where the borrower needs a longer time frame, particularly if they plan to hold onto the property as an investment rental, get it fixed up and occupied then replace this short term loan with traditional long term financing. Depending on your specific desires, we can bring deals to the table that match your needs, comfort levels and time horizon.

A. Private loans are commitments on both sides…borrowers commit to a plan to purchase/ fix/and generally sell a property within a specified time, and lenders commit to funding this activity until the loan pays off. However, since we are involved with many loans and a broad array of private lenders…our policy is to attempt replace any private lender who requests an early payoff for “emergency” reasons whenever possible. Depending on the anticipated time until payoff, this may or may not be feasible should someone new need to step in for a very short period of time.

A. Yes, your interest rate is fixed and locked in for as long as the loan is extended. Borrowers do have the right to pay off the loan early, and also loans are designed with extension periods that may be necessary for the borrower to sell the property or refinance.

A. We understand you might be liquidating investments or foregoing another investment program to get a high rate of return. Therefore all loans have a minimum stated period of interest, regardless of payoff date.

A. Many Private Lenders, particularly those investing with retirement plan savings, see little benefit in receiving monthly checks and prefer letting the interest accrue and getting a big payment when the property cashes out. Other private lenders are seeking monthly payments to cover their living expenses. The great thing about private lending is there are plenty of deals to choose from which will align with your desires, and we can help bring lending opportunities for you to evaluate that meet your specific investment parameters.

A. Both are generally available. Our belief is that if the cumulative value of all liens on a property does not exceed 70%…AND you are dealing with a proven experienced borrower with a good property in a good area, there is limited additional risk to second position liens. Often you are able to receive a slightly higher return on second position participation than first….so it comes down to your personal comfort level and willingness to accept the risk involved.

Minimum Investment

A. Our turnkey lending programs are built upon the premise that you should be able to invest whatever you choose to invest, rather than having some high threshold like $100,000 + minimum. Of course there are practical limitations; generally a minimum of $25,000 seems to work for some deals, other deals require a minimum of $50,000. Some people may choose to participate by fully funding a loan, in which case the minimum would be the total value of the loan. In most other cases, we have legal means of you participating in a fractional basis, with other private lenders involved in the same loan so you can invest the exact amount you’d like to deploy. It’s your choice.

Guarantee?

A. No. There is no government backed guarantee on these real estate notes. However, your protection and security is the amount of protective equity in the property that secures the note. We will not participate in loans more than 70% of the (fixed up) value of the property securing the loan. That way, private lenders always have financial protection at least a 30% “Private Equity Cushion” in the property. Many times the “loan to value” is far lower/the cushion is more which provides even greater protection for your investment capital. Our borrowers do personally guarantee the loans, for added protection to lenders.

IRS Approved for Retirement Accounts?

A. YES! The IRS does establish guidelines that must be followed in order for a Retirement Account (IRA) to invest in real estate notes tax deferred or tax free. You’ll need the services of a company approved by the IRS to act as your custodian to invest your retirement funds. We have experience with several “self directed IRA custodians” and will be happy to put you in contact with these service providers who can explain the whole process of being able to “self direct” your investment choices.

Loan to value?

A. Our policy not to lend more than 70% of the value of a property. That leaves at least a 30% cushion of equity protecting your capital. You will receive full details on the value, status and condition of the property whenever we present you with an opportunity to lend. You will clearly see what other properties in the area have sold for and/or what an independent appraiser states the property will be worth, when fixed with a specific scope of work. As well, borrowers generally are putting their own cash into each deal, which even further reduces your risk of participation.

Cost and insurance

A. The borrower pays for all closing costs so your entire investment capital goes to work for you. This includes paying for the closing real estate attorney, document prep fees, notary fees, overnight mail fees, bank wire fees and recording costs. There are no charges or fees whatsoever incurred by you, other than your direct costs of wiring funds or fees by your IRA custodial should that be your source of funding.

A. A valid hazard insurance policy is always in place to protect against causalities. The lender is named as a mortgagee. Insurance distributions would be used to rebuild or repair the property, or used to pay you off.

Documents and Paperwork

Original Promissory Note, Copy of the Mortgage, Copy of Property Insurance Binder naming lender as the mortgagee, Title Insurance Policy insuring lender against any title problems. Depending on the structuring of your deal, it will typically also include a Special Private Lending Trust naming you as a settlor/beneficiary of the loan.

Protection

A. In this unlikely event, there is a legal process of transfer ownership of the property to the lender as dictated by the state the property is in. Your participation in the loan means you would have beneficial interest in the property at most 70% of its value, therefore making it easy for a quick sale at a profit. Plus, you have all the legal rights of a secured lender.

Sounds great…what is the next step?

A. We would meet to fully describe our program and comprehend your investment parameters. We will discuss if in our opinion you are qualified to be involved in these types of investments, and why. We’ll answer any and all questions you or your financial/legal advisors have. Once you decide you are interested and we have determined that we judge you to be qualified…you will let us know how much you desire to initially invest at a high rate of return, when those funds could be available and how long of a term you’re comfortable with. Then we will begin sourcing opportunities for you to consider. You need to ask us to see deals; we never push to try to get you to participate. When you evaluate all of the information on opportunities that meet your criteria and select one that meets your goals and investment objectives, we will help you with all of the required participation process.

A. It’s our policy to work with people we already have an existing relationship with and with folks they refer. In other words, we work with folks “By Referral Only.” You can certainly refer potential lenders to us. We’ll explain the program and learn about their investment objectives and goals. Once we get to know them there is a possibility they can also participate in our turnkey private lending opportunities if we judge them to be qualified.